Bangkok Post Travel Column.

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Nov. 6--In many debt-restructuring transactions, whether the restructuring is done under the auspices of the Bank of Thailand or through a rehabilitation plan approved by the court, a conversion of some debts into equity is inevitable in order to shore up the financial liquidity of the debtor. Essentially, to a creditor, the form of investment will change from debt financing to equity financing.

As a shareholder, the creditor will take part in the profits and losses of the debtor company and, perhaps, play a role in the business operations. As well, the creditor will receive a return by way of dividends or capital gains instead of interest at a fixed rate.

However, in a debt-restructuring transaction, the financial creditor may have to sell the shares to a new investor or sell them for cash on the Stock Exchange of Thailand (SET) to recover losses at rates more or less than the price determined under the plan.

Supposing you were a bank, and were required to convert non-performing debts into shares, you would have to consider the following aspects as a part of your tax planning.

Tax regulations allow a financial institution to stop realising interest income when a debtor has defaulted on interest payments for more than three consecutive months. Only when the debtor makes payment, will the bank then be required to realise income.

On conversion of debts into shares, you will be treated as if you were receiving payment of principal and interest from the debtor, and you will be required to pay income tax on such interest. If conversion is made on the principal, this issue is not a concern.